Gold, silver rout was about positioning, not fundamentals - Société Générale
Gold and silver continue to struggle as investors come to grips with the broad market collapse on Friday. Although prices have room to fall further, commodity analysts at Société Générale still see asymmetric upside risk through the year.
The bullish comments come a week after the French bank increased its gold price forecast, saying that a rise to $6,000 an ounce by year-end was a conservative estimate.
Although gold and silver have seen extreme selling pressure, the fundamental outlook for the precious metals has not changed.
“Metal prices didn’t just correct on Friday - they deleveraged. Gold fell 10%, exceeding the largest intraday drop since the 2008 global financial crisis and the biggest daily decline since the early 1980s. Meanwhile, silver collapsed 30%,” the analysts said. “These extreme moves tells you this was not fundamentally driven; it was about positioning.”
The analysts said that the trigger behind the selloff was Trump’s announcement that former Fed Governor Kevin Warsh was his pick to be the next chair of the U.S. central bank.
They added that the news provided some bullish momentum for the U.S. dollar, which earlier last week fell to a new multi-year low.
“Gold doesn’t really need rates to rise or fall to react - it just needs 'less bad than expected' monetary policy and that appeared to have been delivered,” the analysts said.
At the same time, because of gold and silver’s extreme overbought conditions, it didn’t take much to trigger massive selling in a low-liquidity environment.
“When positioning gets stretched, stops get hit, margin calls rise, and systematic funds cut risk. Silver’s outsized drop is the hallmark of leverage being flushed. The move was exacerbated by profit- taking, VAR limits being hit, CTA deleveraging and the fact this all happened at month-end. When one domino falls, prices accelerate faster than any fundamental feature could justify,” the analysts said.
As for where prices go next, SocGen said it is watching the options market fairly closely. In the gold market, the analysts said they are seeing increased put options at the December 2026 $4,000 strike price.
However, they also noted increased call options at the December 2026 $10,000 strike price, along with some activity at the $15,000 and $20,000 levels.
“By all accounts, the extremes to the upside versus downside are very asymmetrical,” the analysts said. “As we wrote last week, we remain bullish on gold as we believe the fundamental rationale for precious upside remains despite one area of uncertainty being removed – namely, lower Fed institutional chaos. We always believe a correction can be very healthy.”
The analysts see a similar pattern in silver; however, downside risks appear more pronounced, as they see increased interest in silver May and July 2026 $200 call options. However, they added that there has been a larger buildup in $75 put options for March, followed by the $80/oz and $90/oz strike prices.
“We also note a significant build-up of downside positioning in the July maturity, particularly at the $65 and $95 strikes,” the analysts said. “On the bullish side, only 400 calls were added, indicating continued caution toward silver’s upside potential.”
